MicroStrategy, a company that has become synonymous with corporate investment in Bitcoin, is currently facing scrutiny over the sustainability of its Bitcoin premium. According to Steno Research, the premium that MicroStrategy’s stock (MSTR) holds over its Bitcoin holdings is deemed ‘unsustainable’. This sentiment arises amidst the evolving landscape of cryptocurrency investment vehicles, particularly with the introduction of spot Bitcoin exchange-traded funds (ETFs) and options trading on these ETFs.
The premium in question refers to the market value of MicroStrategy’s shares significantly exceeding the value of its Bitcoin holdings. Historically, investors have treated MSTR stock as a proxy to gain exposure to Bitcoin’s price movements. However, this strategy has led to a premium that, at times, has reached upwards of 300% over the actual value of the Bitcoin held by the company.
Steno Research points out that the launch of options on spot Bitcoin ETFs in the U.S. is likely to alter investor behavior. These ETFs provide a more direct and regulated means of investing in Bitcoin, potentially reducing the allure of MicroStrategy’s stock as a proxy investment. The report suggests that as investors have more straightforward avenues to invest in Bitcoin, the demand for MSTR stock could wane, leading to a correction in the premium.
Tekedia Mini-MBA edition 16 (Feb 10 – May 3, 2025) opens registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
Moreover, the report highlights that sustaining such a premium would require significant demand, especially as MicroStrategy’s valuation increasingly diverges from traditional asset fundamentals. The company’s recent stock split, while initially boosting confidence, may not be enough to maintain the inflated premium in the long run.
The trend of corporate investment in Bitcoin has been gaining momentum, with several notable companies allocating a portion of their treasury reserves to this digital asset. MicroStrategy has been at the forefront of this movement, but it is far from the only company that has ventured into the realm of cryptocurrency investment.
Marathon Digital Holdings, a company focused on mining Bitcoin, has also made significant investments in the cryptocurrency. Tesla, the electric vehicle and clean energy company led by Elon Musk, made headlines with its substantial Bitcoin purchase, reflecting a belief in the long-term value of the asset. Similarly, Galaxy Digital Holdings, a diversified financial services and investment management company in the digital asset sector, has a considerable Bitcoin portfolio.
Other companies that have invested in Bitcoin include Coinbase Global, a platform that allows users to buy, sell, and store cryptocurrencies, and Hut 8 Mining Corp, one of North America’s oldest and largest innovation-focused digital asset miners. Riot Platforms, which focuses on Bitcoin mining, and Block Inc., formerly known as Square, led by Twitter co-founder Jack Dorsey, are also part of this growing list.
These investments signify a broader acceptance of Bitcoin as a legitimate asset class by various sectors, including technology, finance, and energy. As the cryptocurrency market continues to evolve, it will be interesting to see how these investments impact the financial strategies of these companies and the market at large.
The implications of this potential premium correction are far-reaching. Investors who have enjoyed substantial returns from MicroStrategy’s stock may need to reassess their positions. The company itself may face a reevaluation of its investment strategy and corporate identity, which has been heavily tied to Bitcoin.
As the cryptocurrency market matures and regulatory landscapes evolve, the case of MicroStrategy’s Bitcoin premium serves as a cautionary tale. It underscores the importance of adapting to market changes and the risks associated with unconventional investment strategies.